question

Economics is the study? of:

answer

choices made when scarcity exists.

question

A simplified representation of a complex system dealing with economics is known? as:

answer

an economic model.

question

Economic? decision-making often focuses on how a one unit change will impact the system. This type of analysis is known? as:

answer

marginal analysis.

question

Ph.D. economists have traditionally been hired? by:

answer

universities. government agencies. Wall Street firms.

question

According to the? article, ___________ is hiring an economist to help its team of economists use existing data to? "reveal ways to improve the? company's service for buyers and? sellers."

answer

EBay Inc.

question

The behaviors that these firms are attempting to model are the subject? of:

answer

microeconomics.

question

The economic way of thinking is best described as

answer

an analytical framework enabling one to reach informed conclusions.

question

Suppose a government official is trying to decide whether or not to allow more immigration. Which of the following is not an aspect of the economic way of thinking that would apply in this? decision-making process?

answer

Flipping a coin.

question

To which of the following? household-type(s) does the phrase? "unlimited wants and limited resources"

answer

?I, II, and III. A? low-income household II. A? middle-income household III. A? high-income household

question

One reason that economists use microeconomics as the basis of macroeconomic analysis is

answer

that all choices are made by individuals and firms.

question

The three fundamental economic questions that a nation addresses in order to allocate? society's scarce resources include all of the following ?except:

answer

Why will the items be? produced?

question

Which of the following is a true statement about? self-interest as used in the study of? economics?

answer

Any action can be based on? self-interest if the person has some reason for the action.

question

People may appear to use rules of? thumb, as suggested by the assumption of bounded? rationality, even though they may really be behaving in a manner suggested by the rationality assumption if

answer

they face persistently predictable range of choices for a period of time.

question

The ceteris paribus assumption means

answer

other things equal

question

An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve

answer

the collection of data to evaluate the usefulness of the model.

question

Consider the following statement based on a positive economic analysis that assumes that all other things remain? constant. Falling gasoline prices will result in additional vacation travel. Which of the following? (initially assumed? constant) could occur and thus offset the stated outcome?

answer

An increase in hotel taxes at popular resorts

question

Economic goods are

answer

goods that are scarce.

question

Farmer McDonald has 100 acres of land on which he can grow soybeans or corn. An acre of land yields 200 bushels of soybeans or 100 bushels of corn or some combination of both. The accompanying figure refers to farmer McDonald's

answer

production possibilities curve.

question

Steve can? wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. His roommate Mike can? wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. The absolute advantage in laundry is held by

answer

Steve

question

The comparative advantage in meal preparation is held by

answer

Mike

question

The division of productive activities among persons and regions so that no one individual or region is totally? self-sufficient is known as

answer

specialization.

question

Which of the following statements is? true?

answer

Everyone can benefit when people specialize where they have a comparative advantage and then trade with each other.

question

Specialization and comparative advantage

answer

A. lead to international trade and overall gains for the nations involved. B. lead to greater output even if you can do everything better than someone else. C.lead to greater productivity.

question

The inverse relationship between price and quantity demanded is often referred to? as:

answer

the law of demand.

question

If prices fall for a particular good then consumers? will:

answer

buy more units. demand arrow goes down

question

Other things remaining? equal, the law of demand says that higher prices will lead to a

answer

smaller quantity demanded and lower prices to a larger quantity demanded.

question

All of the following pairs of goods are substitutes except

answer

we observe the price of bacon increases and the demand for eggs decreases.

question

All of the following pairs of goods are complements except

answer

we observe the price of coffee decreases and the demand for tea decreases.

question

Assume the cost of aluminum used by? soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft? drinks?

answer

II and III. I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.

question

Which of the following will cause an outward? (rightward) shift in? supply?

answer

A technological improvement.

question

What is the economic effect of price? ceilings?

answer

An effective price ceiling will lead to a shortage.

question

According to the? text, firms encounter rising costs when they attempt to produce more in the same time period. As a? consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is

answer

direct? (or positive) and is called the law of supply.

question

Inflation is more harmful to? people:

answer

living on fixed incomes.

question

Inflation that is higher than? 50% per month is known? as:

answer

hyperinflation

question

High levels of inflation can lead? to:

answer

political unrest.

question

India will sell? ___________ of rice from the government stockpiles.

answer

5 million tons

question

Which of the following measures will lower the natural rate of? unemployment?

answer

More high school graduates enter college without looking for employment right away.

question

Full employment means

answer

there is a level of unemployment consistent with? "normal" frictions in the labor market.

question

According to the circular flow of income and? output, which of the following is not? true?

answer

Goods, services and money all flow in one direction since money pays for the goods and services.

question

The expenditure approach to tabulating GDP

answer

adds up the total amount spent on newly produced domestic goods and services during the year.

question

Using the expenditures approach to national income? accounting, which of the following would be counted as investment spending?

answer

A person in California buys a new house.

question

Which of the following is a true statement about comparing world? incomes?

answer

Adjusting world incomes for purchasing power gives a more accurate view than using market foreign exchange rates.

question

Using the expenditures approach to national income? accounting, which of the following would be counted as consumption?

answer

Residents of New York City buy food every week.

question

Which of the following statements is ?false?

answer

A society that wants more in the future should consume more of its capital today.

question

Brazil has a population of about 200? million, with about 145 million over the age of 15. Of? these, an estimated 25? percent, or 35 million? people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per? year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth? theory: a. Which of the following best explains the implications of? Brazil's literacy and reading rates for its growth prospects in light of the key tenets of new growth theory.

answer

Since the development of human capital is an important determinant of economic? growth, Brazil's literacy and reading rates suggests its potential economic growth rate is lower.

question

b. What types of policies might Brazil implement to improve its growth? prospects?

answer

It should implement programs narrowly focused on promoting a higher literacy rate and broadly focused on a greater average educational attainment by its residents.

question

Mexico has a more open economy? (lower tariff? barriers) than Nigeria Thus it would be expected that the average annual per capita growth rate of real GDP would be higher in Mexico. Free trade encourages economic growth by

answer

encouraging the more rapid spread of technology.

question

In the absence of? well-defined property? rights, we would likely find

answer

people with fewer incentives to take risks.

question

Which of the following is not a true statement about the impact of immigration on economic? growth?

answer

Economists agree that population growth through immigration is a drain on the economy because it lowers per capita GDP.

question

To encourage economic development a country should do all of the following except

answer

limit the amount of imports allowed in to the country.

question

Typically, modern developed countries have gone through three stages Initially countries have most of the population involved in Secondly, much of the population moves to Finally, there is a shift toward

answer

agriculture Industry services

question

Which of the following factors could cause the economy to experience? supply-side inflation?

answer

Government laws which say that the average work week must be reduced by one hour every year.

question

In the long? run, persistent deflation in a growing economy can occur if

answer

increases in the LRAS are proportionately larger than the increases in AD.

question

An increase in the LRAS curve that is larger proportionately than an increase in the AD curve will lead to

answer

a decrease in the price level and an increase in output.

question

Which of the following will generate an increase in aggregate? demand?

answer

Government spending for the onset of a war.

question

According to the? real-balance effect, an increase in the price level

answer

reduces an? individual's expenditures due to a decrease in the real value of cash balances.

question

Which of the following will generate an increase in aggregate? demand?

answer

Government spending for the onset of a war.

question

An? economy's rate of economic growth equals

answer

rate of growth of capital plus rate of growth of labor plus rate of growth in the productivity of capital and labor.

question

Which of the following will increase labor? productivity?

answer

Labor has more physical capital to work with.

question

The rate of growth in the productivity of capital is 1? percent, the rate of growth of capital is 2? percent, the rate of growth of labor is 1? percent, and the rate of growth in the productivity of labor is 3 percent. From this we know that

answer

the rate of economic growth is 7 percent.

question

Labor productivity is normally measured by

answer

dividing total real domestic output by the number of workers or by the number of labor hours.

question

A country that saves a larger percentage of GDP than another country? will, ceteris paribus

answer

experience higher rates of economic growth since there will be more investment.

question

For economic growth to take? place, a country must save.? But, for saving to actually generate economic? growth,

answer

saving must be channeled into investment.

question

One of the most important factors for economic growth to take place is that a society must

answer

consume less than they produce.

question

Which of the following statements is ?false?

answer

A society that wants more in the future should consume more of its capital today.

question

Total capital is the sum of

answer

physical capital and human capital.

question

On a national? basis, higher saving rates eventually mean higher living standards in the long? run, all other things held constant.

answer

True

question

Improvements in ______ productivity, all other things being? equal, lead to _________ economic growth and higher living standards. One fundamental determinant of the rate of growth is the rate of _________ . To have more consumption in the? future, we have to __________ rather than consume. In? general, countries that have had higher rates of _______ have had higher rates of growth in per capita real GDP.

answer

labor; greater; saving; save; saving

question

What is economic? growth?

answer

Economic growth is increases in per capita real GDP measured by its rate of change per year.

question

Why are politicians and economists concerned about the economic growth rate in the? U.S.?

answer

Small differences in the rate of economic growth can make large differences in the standard of living over time.

question

Economic growth as it is currently measured

answer

A. does not consider? spiritual, cultural or social difficulties that may arise from growth. B. understates actual economic growth since it does not adjust for changes in leisure. C. does not account for how increased per capita income is distributed across income groups.

question

Real standards of living can only go up with positive economic growth.

answer

False

question

All of the following are benefits of economic growth except

answer

urban congestion

question

If the average annual rate of economic growth is 4? percent, approximately how long will it take for the? nation's per capita real GDP to? double?

answer

17.5 years

question

Economic growth can be defined as the increase in _____ real? GDP, measured by its rate of change per year. The _____ of economic growth are reductions in? illiteracy, poverty, and illness and increases in life spans and political stability. The costs of economic growth may include environmental? pollution, alienation, and urban congestion. Small? percentage-point differences in growth rates lead to ______ differences in per capita real GDP over time.

answer

per capita; benefits; costs; large

question

According to the new growth theory

answer

knowledge about how to produce goods and services is an important source of economic growth.

question

New growth theory differs from traditional growth theory in that

answer

traditional theory did not explain what causes improvements in? technology, but new growth theory does.

question

The new growth theory argues that

answer

technology must be considered a separate factor of production that is sensitive to economic incentives.

question

Economic growth is positively related to all of the following except

answer

import tariffs

question

There are predictions that computers may become as powerful as the human brain by 2030.

answer

True

question

According to new growth? theory, more technological advances will occur when the rewards are greater.

answer

True

question

In the United? States, a patent gives the inventor of a product the exclusive right to? make, use, or sell the product for 50 years.

answer

False

question

For every 1 percent increase in the stock of research and development in the United? States, productivity in the rest of the world

answer

increases by about 0.25 percent.

question

Nations with high tariff barriers have tended to have higher average annual rates of real GDP per capita growth since 1965.

answer

False

question

An innovation is the same thing as an invention.

answer

False

question

According to economist Paul? Romer, ideas are what drive economic growth.

answer

True

question

The knowledge and skills that people in the workforce acquire through? education, on-the-job? training, and? self-teaching is referred to as

answer

human capital.

question

Population growth generally

answer

encourages technological progress that increases economic growth.

question

Limiting the immigration of highly educated professionals hurts U.S. economic growth because

answer

it restricts the supply of high human capital workers and the new ideas they could potentially generate. it restricts the knowledge base of the workforce.

question

According to new growth? theorists, increased population growth rates can lead to faster economic growth because

answer

the larger the market the more incentive there is to innovate.

question

According to Julian? Simon,

answer

legal and illegal immigrants have a positive effect on the welfare of American citizens.

question

Government enforced property rights are crucial to economic growth because they

answer

provide incentives for capital accumulation and entrepreneurial activity. B. encourage people to save knowing their wealth will not be arbitrarily confiscated. C. make the returns to? risk-taking relatively more certain.

question

Which of the following statements is not? true?

answer

Property rights encourage people to take fewer? risks, making the economy more secure.

question

Entrepreneurship functions better when

answer

a system of private property rights permits entrepreneurs to capture the rewards from their entrepreneurial activities.

question

In the absence of? well-defined property? rights, we would likely find

answer

people with fewer incentives to take risks.

question

Population growth can have both a positive and a negative impact on economic growth.

answer

True

question

In? general, the more securely private property rights are? assigned, the more capital accumulation there will be.

answer

True

question

The economic development of a country is dependent on all of the following except

answer

promoting protectionist barriers.

question

The development of modern rich nations can be characterized by three? stages:

answer

agricultural? stage, followed by manufacturing? stage, and lastly the tertiary stage.

question

To encourage economic development a country should do all of the following except

answer

limit the amount of imports allowed in to the country.

question

Developing countries should

answer

focus on production based on comparative advantage.

question

For? modern, rich? nations, the three stages of development? (in order of? occurrence) are

answer

agriculture, manufacturing, and services.

question

Which of the following factors are highly related to the pace of economic? development?

answer

limiting protectionism B. developing an educated population C. establishing a system of property rights

question

Total expenditures for domestically produced goods and services consist of

answer

consumer? spending, business? spending, government? spending, and net foreign spending.

question

Which one of the following is not a component of total? expenditures?

answer

Merchandise inventories.

question

What determines the total value of annual U.S.? GDP?

answer

The spending and production decisions of? consumers, firms,? governments, and foreigners.

question

The total of all planned real expenditures in the economy is

answer

aggregate demand

question

The aggregate demand curve

answer

shows planned purchase rates of goods and services at various price levels.

question

The aggregate demand curve slopes downward because of the

answer

real-balance, interest rate and open economy effects.

question

According to the? real-balance effect, an increase in the price level

answer

reduces an? individual's expenditures due to a decrease in the real value of cash balances.

question

According to the interest rate? effect, an increase in the price level

answer

increases nominal interest rates. B. reduces borrowing and spending. C. reduces the aggregate quantity of goods and services demanded.

question

Which of the following will generate an increase in aggregate? demand?

answer

Government spending for the onset of a war.

question

The U.S. aggregate demand curve would shift to the left if

answer

the Federal Reserve Board caused the real interest rate to increase.

question

The aggregate demand curve would shift to the right as a result of

answer

a drop in the foreign exchange value of the dollar.

question

All of the following would cause the aggregate demand curve to shift except

answer

price level changes.

question

In an open? economy, the total value of GDP is based on the spending decisions of? individuals, firms,? governments, and foreign residents.

answer

True

question

As more economic development? occurs,

answer

he population growth rate decreases.

question

The model of? long-run equilibrium

answer

is the same as the Classical Model.

question

One of the main conclusions of? Say's Law was that

answer

if people supply goods in order to then demand? goods, there can be no overproduction in a market economy and full employment will be the normal state of affairs.

question

Which of the following best exemplifies? Say's Law?

answer

The production of a? $4000 plasma TV set creates demand for other goods and services valued at? $4000.

question

Say's Law fits best in the ______since this philosophy placed great importance on _______to determine the _________.

answer

Classical Theory;aggregate supply; level of output.

question

Suppose that aggregate demand were to increase due to a weaker dollar. Which of the following would be the? result?

answer

inflation only

question

?Say's law asserts that

answer

supply created its own demand

question

Which of the following is not one of the four major assumptions of the classical? model?

answer

People suffer from money illusion.

question

The classical economists believed that the leakage of saving would be matched by the injection of business investment.

answer

True

question

The lower the rate of? interest, the? ________ profitable it is to invest and the? ______ the level of desired investment.

answer

more; higher

question

The level of employment in an economy determines its real GDP.

answer

True

question

If an excess quantity of labor is supplied at a particular wage? level, the wage level

answer

must be above equilibrium

question

According to the classical? model, if the economy starts at full employment an increase in aggregate demand will cause all of the following to occur except

answer

a decrease in wage rates.

question

The extent to which real GDP responds to changes in the price level along the? short-run aggregate supply curve is largely determined by

answer

A. the speed with which input prices adjust and people become more fully informed. B. the ability of firms to hire additional? inputs, particularly workers. C. the ability of firms to use existing workers and capital more intensively.

question

Which of the following might also yield the outcome shown by your? diagram?

answer

A and B only. Increase in productivity. A decrease in raw materials prices.raw materials prices.

question

In considering the forces which may increase an? economy's real GDP in the long? run, which of the following will NOT play a? role?

answer

Lower wages for labor.

question

The Modern Keynesian? short-run aggregate supply curve is best described by which of the following? statements?

answer

It is very flat at low levels of real? GDP; increases slightly as real GDP? grows; and becomes very steep as real GDP surpasses full employment.

question

The modern Keynesian Model assumes that

answer

that prices respond to changes in aggregate demand but not fully.

question

Since the modern Keynesian Model allows for some price? response, the aggregate supply curve

answer

is upward sloping.

question

Suppose that the wage rate of labor increased temporarily. The result of this would be best described by

answer

a decrease in the? short-run aggregate supply curve only.

question

Suppose that there is a? temporary, but significant increase in oil prices in an economy with an? upward-sloping SRAS curve. As a policy response to this? short-lived but sudden increase in oil? prices, a central bank

answer

cannot stabilize both the price level and the real GDP simultaneously.

question

Suppose that an economy is currently in a long run equilibrium where SRAS? = LRAS? = AD. If there is a decrease in the money supply?, which of the following is the best description of the outcome in the? economy?

answer

Aggregate demand decreases.

question

Suppose that an economy is currently in a long run equilibrium where SRAS? = LRAS? = AD. Given that there is a decrease in the money supply?, the new short run position of the economy finds itself in is termed

answer

a recessionary gap.

question

Suppose that the value of the US dollar? ($) yesterday was? $1 = 4 yen. Today the exchange rate changed such that? $1 = 5 yen. Given that the US? $ has? appreciated, the aggregate demand in the United States should

answer

shift to the left.

question

Given that the US? $ has? appreciated, the? short-run aggregate supply in the United States should

answer

shift to the right

question

Suppose that the value of the US? $ yesterday was? $1 = 4 pesos. Today the exchange rate changed such that? $1 = 8 pesos. One can say the

answer

US? $ appreciated.

question

An appreciation of the US? $ should result in

answer

a lower price level but the impact on the level of real GDP depends on the magnitude of the shifts in the aggregate demand and? short-run aggregate supply curves.

question

In the Keynesian? model, if disposable income were to increase households would

answer

increase both their consumption and saving.

question

The relationship between the MPC and the MPS indicates that the entire increase in household disposable income

answer

is distributed between consumption and saving.

question

In the Keynesian model equilibrium national income

answer

equals planned? consumption, investment,? government, and net export expenditures.

question

If real GDP falls below total planned expenditures the economy will see

answer

production and employment increases.

question

Which of the following statements is true when considering an economy with an? upward-sloping short-run aggregate supply? curve?

answer

The multiplier has more impact when the economy is experiencing a recessionary gap compared to an inflationary gap.

question

The multiplier is weakened in inflationary gaps because of

answer

rapid price level increases.

question

Suppose that aggregate demand were to decrease due to a stronger dollar. Which of the following would be the? result?

answer

Deflation only

question

Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and push up real GDP in the short run. In? fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. This outcome can be explained by all of the? following, except one. Which one of the following is the? exception?

answer

Automatic stabilizers.

question

The Congressional? meetings, discussions,? arguments, debates over fiscal policy and the subsequent signing or vetoing by the President of a bill are part of the

answer

action time lag.

question

Which of the following statements is true when considering time? lags?

answer

Time lags in fiscal policy can be extremely long and may take several years before any impact is felt.

question

During normal? times, fiscal policy probably achieves most of its impact through

answer

the workings of automatic stabilizers.

question

In early? 2008, it appeared that the U.S. economy was either in a recession or growing very slowly. President Bush announced a program of tax rebates. This program can be described as? ___________ and was intended to? ______________.

answer

discretionary fiscal? policy; increase consumer spending

question

Which of the following is not a source of funding available to? governments?

answer

Stock sales.

question

The federal government has its best opportunity to lower its national debt when it has

answer

a budget surplus.

question

a. ?Previously, the government operated with a balanced? budget, but recently there has been a sudden increase in federal tax collections. The net public debt

answer

decreases

question

The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic? Coast, and now government spending has risen substantially. The net public debt

answer

increases

question

c. The General National Mortgage? Association, a federal government agency that purchases certain types of home? mortgages, buys U.S. Treasury bonds from another government agency. The net public debt

answer

remains unchanged

question

What is the relationship between the gross public debt and the net public? debt?

answer

The net public debt only included government debt held by the public.

question

If federal budget deficits ?increase, then a part of that deficit

answer

will be financed by foreign dollar? holders, who will buy fewer U.S.? exports, thus increasing the U.S. trade deficit.

question

During the late? 1970s, prices quoted in terms of the Israeli? currency, the? shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with? dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using? shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation.? Thus, the U.S. dollar functioned as money in Israel during this period

answer

as a store of value

question

During the? 1945-1946 Hungarian? hyperinflation, when the rate of inflation reached 41.9 quadrillion percent per? month, the Hungarian government discovered that the real value of its tax receipts was falling dramatically. To keep real tax revenues more? stable, it created a good called a? "tax pengö", in which all bank deposits were denominated for purposes of taxation. ?Nevertheless, payments for goods and services were made only in terms of the regular Hungarian? currency, whose value tended to fall rapidly even though the value of a tax? pengö remained stable. Prices were also quoted only in terms of the regular currency.? Lenders, however, began denominating loan payments in terms of tax? pengös. The tax? pengö functioned as money in Hungary in 1945 and 1946

answer

as a standard of deferred payment

question

A? $1,000 balance in a transactions deposit at a mutual savings bank. This item is counted in

answer

both M1 and M2

question

A? $100,000 certificate of deposit issued by a New York bank. This item is counted in

answer

neither M1 or M2

question

A? $10,000 time deposit an elderly widow holds at her credit union. This item is counted in

answer

M2 only

question

A? $50 traveler's check. This item is counted in

answer

both M1 and M2

question

A? $50,000 money market deposit account balance. This item is counted in

answer

M2 only

question

Jennifer has $1,000 in her checking account. Is this counted in M1? only, M2? only, M1 and? M2, or? neither?

answer

M1 and M2

question

A manager of a savings and loan association responds to reports of a likely increase in federal deposit insurance coverage. She directs loan officers to extend mortgage loans to less creditworthy borrowers. This situation poses

answer

a moral hazard problem

question

A loan applicant does not mention that a legal judgment in his divorce case will require him to make alimony payments to his? ex-wife. This situation poses

answer

an adverse selection problem

question

An individual who was recently approved for a loan to start a new business decides to use some of the funds to take a Hawaiian vacation. This situation poses

answer

a moral hazard problem

question

Which of the following statements is true when considering central? banks?

answer

The number of central banks in the world grew enormously after the Great Depression.

question

Which of the following is a function of the Federal Reserve? System?

answer

Acting as a lender of last resort to commercial banks.

question

The Federal Reserve purchases ?$12 million in U.S. Treasury bonds from a bond? dealer, and the? dealer's bank credits the? dealer's account. The required reserve ratio is 11 ?percent, and the bank typically lends any excess reserves immediately. Assuming that no currency leakage? occurs, calculate how much will the bank be able to lend to its customers following the? Fed's purchase. ?$

answer

10.68 million Total Reserves?Required Reserves=Excess Reserves=Loans to its Customers

question

Calculate the sum of this? bank's total amount of liabilities and net worth

answer

4.97 billion Total assets=Total reserves+Loans+Securities+Other assets

question

Calculate the additional amount of loans this bank can make to households and firms.

answer

10 billion Total Reserve?Required Reserve=Excess Reserve

question

Calculate the current quantity of transactions deposits at this bank.

answer

2.88 billion Transaction deposits: required reserve/required reserve ratio

question

Stockbrokers monitor the companies after investing funds in? them, in order to

answer

limit moral hazard

question

Commercial banks screen their borrowers before a loan can be? approved, in order to

answer

limit adverse selection

question

Money market mutual funds combine the savings of many? individuals, in order to

answer

lower management costs

question

Using the line drawing tool?, draw a money demand curve on the graph indicating the relationship between the interest rate and the opportunity cost of holding money. Label the curve Md.

answer

supply curve but actually demand

question

If the Fed increases the discount? rate, relative to the federal funds? rate, then this

answer

would increase the cost of funds for institutions borrowing from the Fed.

question

a. As a result of the dollar? appreciation, U.S. net export expenditures will

answer

decrease

question

b. The aggregate demand curve that could represent the aggregate demand effect of the U.S.? dollar's appreciation is

answer

AD2

question

The real GDP _________ and the price level will ________ as a result of the dollar appreciation.

answer

will decrease; decrease

question

c. Federal Reserve may take a certain policy action to prevent the? dollar's appreciation from affecting equilibrium real GDP in the short run. Which one of the following is not a likely policy action that the Fed will? take?

answer

Increasing government spending

question

Which of the following is a true? statement?

answer

Both the direct and the indirect effects of an expansionary monetary policy are to increase aggregate demand.

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The indirect effect of an increase in the money supply works through

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a decrease in the interest rate increasing investment and consumption.

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The graph to the right shows the supply and demand for bonds. Suppose that the Fed conducts an open market operation to increase the money supply. ?1.) Using the line drawing tool?, show the effect on the bond market. Properly label your line. ?2.) Using the point drawing tool?, indicate the new equilibrium? point, and label it . As a result of this open market? operation, the interest rate will

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fall

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Suppose that initially the money supply is ?$2 ?trillion, the price level equals 44?, the real GDP is ?$6 trillion in? base-year dollars, and income velocity of money is 12. Then the money supply increases by ?$200 ?billion, while real GDP and income velocity of money remain unchanged. a. According to the quantity theory of money and prices, calculate the new price level after the increase in money? supply:

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Ms×V=P×Y

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b. Calculate the percentage increase in money? supply:

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10% New value of Ms-initial value of Ms/initial value of Ms *100

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Calculate the percentage change in the price? level:

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10% New price level-Initial price level/initial price level *100

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d. The percentage changes in the money supply is ________ percentage changes in the price level.

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equal to the

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To implement a credit policy intended to expand liquidity of the banking? system, the Fed desires to increase its assets by lending to a substantial number of banks. How might the Fed adjust the interest rate that it pays banks on reserves in order to induce them to hold the reserves required for funding this credit policy? action? The Fed should _______ the interest rate.

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increase

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What will happen to the? Fed's liabilities if it implements the policy action to induce banks to hold the reserves required for funding its credit? policy? The? Fed's liabilities will

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increase

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Suppose that the Fed pursues an expansionary monetary policy. Which of the following statements best explains the transmission mechanism in an open? economy?

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The decrease in interest rates will cause capital outflow, lowering the value of the dollar and increasing net exports.

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In an open? economy, the net export effect

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may offset an expansionary fiscal policy but enhance an expansionary monetary policy.

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The Fed acts like a private banking institution when it

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provides payment- clearing services to depository institutions

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The Fed acts like a government agency when it

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supervises depository institutions

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Which of the following is not a duty of the a central? bank?

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Guarantee the savings of its citizens.

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Due to the? Gramm-Leach-Bliley Act of 1999

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the US government allowed commercial banks to own stock and sell insurance policies.

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Which of the following statements is true when considering national banking structures around the? world?

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U.S. businesses only obtain approximately? 30% of their funds from bank loans compared to? 65% for European firms.

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Which of the following statements is true when considering central? banks?

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The number of central banks in the world grew enormously after the Great Depression.

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What is the basic structure of the Federal Reserve? Bank?

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There are 12 district? banks, a Board of Governors and a Federal Open Market Committee.

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Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve? system?

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Some severe banking crises at the end of the 19th century and early 20th century.

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Which of the functions of the Federal Reserve is appropriately matched with its correct? institution?

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Holds reserve balances for depository? institutions; The Federal Reserve Bank.

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If you live in? Atlanta, Georgia, and you purchase a computer in Los? Angeles, California, while there on? vacation, which of the following paths would your check take before it finally? clears?

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The check goes from the computer? store's bank to the Federal Reserve bank in San? Francisco, then to the Federal Reserve bank in? Atlanta, and then to your bank

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Which of the following does not describe some of the functions of the Federal Reserve? Bank?

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Acts as a medium of? exchange, a unit of? accounting, a store of value and a standard of deferred payment.

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When the Fed acts as the lender of the? "last resort" it means that

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the Fed lends to depository institutions it deems should not fail.

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Which of the following statements is ?incorrect?

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There are a total of 25 Federal Reserve district banks.

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When a temporarily illiquid bank which is otherwise in good financial condition borrows money from the Fed in an attempt to prevent a loss of confidence in the bank or in other? banks, this is an example of the Fed

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acting as the lender of last resort.

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What are the features of federal deposit? insurance?

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Depository? institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.

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The type of policy making that is not in response to actual or potential changes in overall economic activity is called

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passive policy making.

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The natural rate of unemployment depends on factors that affect the behavior of both workers and firms. All the following are likely to influence the natural rate of? unemployment, except

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the burden of government debt on the general public.

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The natural rate of unemployment in the U.S.

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is the rate of unemployment that exists in the long run after everyone in the economy has fully adjusted to changes that have occurred.

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The actual rate of unemployment is

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greater than the natural rate of unemployment when cyclical unemployment is positive.

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Suppose that economists were able to use U.S. economic data to demonstrate that the rational expectations hypothesis is true. In light of? that, the policy irrelevance proposition will

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not be? valid, since wages and prices of? non-labor factors of production may adjust sluggishly.

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The? real-business-cycle approach attributes even? short-run increases in real GDP largely to aggregate supply shocks. Rightward shifts in aggregate supply tend to push down the equilibrium price level. The United States has experienced low but persistent inflation in recent years. This happened because

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the increase in aggregate demand was more than the increase in aggregate? supply, thereby increasing the price level.

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The policy irrelevance proposition states that

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only unanticipated monetary policy changes can affect real GDP or the unemployment rate.

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If prices are sticky in the short? run, a decrease in aggregate demand will lead to

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the largest possible decrease in real GDP.

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Because of the effect of sticky prices on real GDP in the short? run, new Keynesian economists advocate _______ policymaking

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active

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Which of the following is an argument in favor of passive ?policymaking?

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Aggregate demand shocks have little effect in the short run and no effect on real GDP in the long run.

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Monetary policy undertaken by the Fed

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can be either passive or active policy depending on the reason it is undertaking its action.

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Suppose that people who previously had held jobs become structurally unemployed due to establishment of new government regulations during a period in which the inflation rate remains unchanged. Would the result be a movement along or a shift of the? short-run Phillips? curve?

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A rightward shift of the? short-run Phillips curve.

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Consider a situation in which a future president has appointed Federal Reserve leaders who conduct monetary policy much more erratically than in past years. The consequence is that the quantity of money in circulation varies in a much more unsystematic? and, hence,? hard-to-predict manner. According to the policy irrelevance? proposition, is it more or less likely that the? Fed's policy actions will cause real GDP to change in the short? run?

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More? likely, since much of the changes in the money supply will be unanticipated.

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People called? "Fed watchers" earn their living by trying to forecast what policies the Federal Reserve will implement within the next few weeks and months. Suppose that Fed watchers discover that the current group of Fed officials is following very systematic and predictable policies intended to reduce the unemployment rate. The Fed watchers then sell this information to? firms, unions, and others in the private sector. If pure competition? prevails, prices and wages are? flexible, and people form rational? expectations, then the? Fed's policies

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are likely to have no effect on the unemployment rate.

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What is the rational expectations? hypothesis?

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People form their expectations on the values of economic variables based on all available past and current information and their understanding of how the economy functions.

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The combination of rational expectations and perfectly competitive markets is best reflected in which of the following? models?

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New Classical.

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Which of the following statements about the policy irrelevance proposition is not? true?

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The policy irrelevance proposition implies that the there is a short run change in real? GDP, but no long run change in real GDP.

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According to the rational expectations? hypothesis, a policy cannot have a? long-run effect on real GDP or the unemployment rate because

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A.people do not persistently make the same mistakes in forecasting the future. B. in the long? run, people's expectations will correctly anticipate the effects of any policy action and the public will react in such a way as to nullify the impact of policy. C. the policy will not contain unsystematic qualities in the long run and thus the public will be able to accurately forecast the actions and consequences of policy makers

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Suppose that more unemployed people who are classified as part of frictional unemployment decide to stop looking for work and start their own businesses instead. What is likely to happen to each of the? following, other things being? equal?

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The natural unemployment? rate: decreases The? economy's Phillips? curve: shifts left

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In new Keynesian models of aggregate economic? activity, "sticky" prices and wages are explained by

answer

the small? menu-cost and efficiency wage? theories, respectively.

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According to the rational expectations? hypothesis, an? individual's assessment of future economic performance

answer

considers both past performance and current monetary and fiscal policy.

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